A running debate in the markets for the last few years has been the degree to which exchange traded funds have been driving the ups and downs of underlying stocks that make up ETFs.

A big part of the problem is simply that it’s difficult to know precisely just how much trading of individual stocks is generated by shares of ETFs being bought and sold, especially if the trading doesn’t result in ETF shares being created or redeemed (which is more likely to result in the underlying stocks being bought or sold by ETF market makers as part of the ETF basket.)

Then there’s the question of whether the impact is a positive of negative. Many argue ETFs contribute to volatility (we’re looking at you VNQ, IYR and RWR!) Seemingly just as many argue that any increase in the trading of the underlying stocks generated by ETF shares is a positive. That’s because, they say, it increases the volume of stocks that otherwise would be lightly traded as individual names.

Steven DeSanctis, Merrill Lynch’s head of U.S. small cap strategy, has waded into the question with a lengthy report published today looking at the impact of ETFs on small caps – specifically the $16 billion iShares Russell 2000 Index Fund (IWM). DeSanctis looked at the impact from both the standpoint of manager performance and the underlying market.

If you bet heavily on an apocalyptic market using ETFs last year, then congratulations: You’re the big winner.

Birinyi Associates just put out a list of the best-performing ETFs in 2011, and it reads like the Paranoid Trader All-Star Team: Double- and triple-leveraged long Treasurys, double-leveraged short international stocks, double-leveraged short commodities.

The list of losers is a gallery of crushed dreams of a global rebound: The TMV triple-leveraged short-bond ETF was down 69%. The INDL double-leveraged long-India ETF was down 67%.

Gold investors have seen huge gains this year, but the recent underperformance of gold versus U.S. stocks is vexing to those who waited to bulk up on the precious metal, or those who added to positions over the past three months.

Even though gold has recently stumbled relative to equities, technicians still see long-term reasons to be bullish on gold, particularly should the current stock rally fizzle.

A common means for equity investors to gain gold exposure is with the SPDR Gold Shares Trust, an exchange traded fund that tracks movements in the precious metal. The GLD is up about 22% so far in 2011 versus slightly negative performance in the Standard & Poor’s 500-stock index. But over the past three months, the GLD has shed nearly 5%, while the S&P 500 has climbed by around 4.5%.

The first U.S. exchange-traded fund to track only Greek stocks is slated to launch this week, offering investors another tool to deploy investment strategies amid Europe’s ongoing sovereign-debt crisis.

The fund, reflecting the trend of ever more specific slivers of market exposure, is tied to the FTSE/ATHEX 20 Capped Index, which tracks the top 20 companies by market capitalization on the Athens Stock Exchange.

After a brief pause, oil prices are technically poised to resume their breakout rally, which could help give energy stocks the boost they need to extend their gains as well.

The United States Oil Fund, an exchange traded fund that tracks the movements of light, sweet crude oil, rallied on Oct. 14 above a downtrend line starting at the May 2 high. Meanwhile, the consolidation that followed that breakout led some chart watchers to believe the rally off the Oct. 4 bottom had run its course.

But the breakout passed a big test Thursday, when the USO fell as much as 2.4% in intraday trading to dip just below an extension of the downtrend line, only to bounce sharply to close up 0.1%.

In a Morningstar interview, value-investing legend Jack Bogle bemoans the state of a market increasingly dominated by robots and ETFs, one befuddling to traditional investors.

Money quote: “One only has to understand that all this trading back and forth, by definition, doesn’t enrich the investor, because if I buy, you sell and vice versa, but what it does is enrich the croupier in the middle, which we call Wall Street, which has a bunch of very angry people sitting on its doorstep as we speak.”

The average investor may not pay a lot of attention to the pace of ETF trading compared to individual stocks, but it is an indicator that Wall Street professionals watch during rough markets.

Well-known tools for measuring market sentiment include the CBOE Volatility Index, or VIX; the rise and fall of major indices; and mutual fund inflows and outflows. Each has its place in determining just how uneasy investors are about buying stocks in a given environment.

But the role that exchange-traded funds play as a test of market sentiment can also be useful, especially when their trading activity is high compared to that of individual stocks.

Right now, the percentage of daily volume of ETF trading is trending close to 30%, and individual stocks are at about 70%, a change from the 22% and 78% they respectively averaged in the first two quarters of the year, according to Nicholas Colas, chief market strategist at ConvergEx,

“You buy a single stock because you believe in management and like the company’s business model,” but in volatile times when the entire market is declining indiscriminately, such fundamental stock-picking strategies can still fall flat even for good companies, he said.

“People want to avoid loss more than they will try to seek gains, and ETFs are living proof of that,” Colas added.

Investors turn more to ETFs as a hedge when they can’t count on fundamental stock picking to generate good results. Wall Street investment bankers say that they keep an eye on ETF-to-stock trading ratios as one measure of investor receptivity.

For the six Merrill Lynch HOLDRS being converted to Van Eck Global ETFs next quarter, long-term investors participating in the exchange will have some number crunching to do.

Last month, Merrill Lynch and Van Eck announced that Merrill was parting ways with their once ground-breaking ETF-like products known as HOLDRS. Organized as unit investment trusts, the seventeen trusts did not have the flexibility to update or rebalance their portfolios.

Six HOLDRS are being bought by newly-created Van Eck ETFs tracking the 25 largest and/or most liquid companies in a particular sector. The other 11 are heading to the financial products graveyard. While stock ETFs are lauded for their tax efficiency, particularly around capital gains, this conversion will have some bumps. Whether those bumps are good or bad will depend on when you bought in and whether you take the exchange.

HOLDRS, which can only be bought in round lot multiples of 100, pass on the cost basis of all the underlying shares. So, when the portfolios rebalance into the ETFs, any capital gain or loss is based on the price at which you bought. You’ll have to dig through brokerage statements from as far back as 2000, but Merrill Lynch does provide a calculator for the underlying shares cost basis, once you’ve found the price and date.

If you don’t take the exchange, according to Van Eck Global’s Adam Phillips, you can cancel your HOLDRS and take the shares or sell in the market. With no action, you will be cashed out when the HOLDRS trust expires sometime after the exchange offer commences in mid-November.

MKM Partners says the Fed’s potential “Operation Twist,” the altering of the composition of the Fed’s securities portfolio to include more longer-term debt, could weigh on regional bank stocks.

The plan is designed to bring down long-term interest rates to stimulate investment spending, but “the perception of pressure on net interest margins may hurt the regional banks,” firm says. The FOMC could consider the policy in its policy discussions tomorrow and Wednesday.

For advanced protection, MKM suggests buying $20 October put options on the SPDR KBW Regional Banking ETF. With puts on KRE relatively cheap compared with other financial ETFs, the firm says the downside risk to KRE is “underappreciated.”

A little less underappreciated today, however: The KRE is down 3.6% to $20.61.

Anyone holding the $27.5 million IVO on September 19 will be cashed out at $11.80. (Not surprisingly, the ETN has traded there today.) But, if past is prologue, it’s possible that Barclays will offer a new inverse VIX to replace IVO soon enough, as they did this summer.

By our count, there are now 28 different ETNs and exchanged-traded funds tracking VIX futures. With the launch from UBS – targeting long or short exposure on specific VIX futures contracts – traders can now pinpoint how many months out they want to sit on the forward volatility curve. As if the prior products, targeting short-term (first and second month) or mid-term (fourth, fifth, sixth, seventh month) weren’t enough.

But one point has hit home with the launches and terminations, VIX futures trading–directly or through an ETN or ETF–is not for the faint of heart or unwitting investor. And that’s even coming from UBS.

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MarketBeat looks under the hood of Wall Street each day, finding market-moving news, analyzing trends and highlighting noteworthy commentary from the best blogs and research. MarketBeat is updated frequently throughout the day, helping investors stay on top of what’s happening in the markets. Lead writers Paul Vigna and Steven Russolillo spearhead the MarketBeat team, with contributions from other Journal reporters and editors. Have a comment? Write to paul.vigna@wsj.com or steven.russolillo@wsj.com.

Global investment banks got a second-quarter revenue boost from a surge in Asian stock trading. But given China’s market volatility and stock declines in some other countries, those revenue gains may be hard to replicate.